Inside AG1’s product expansion playbook (RERUN)

0:09Melissa Daniels:Hello and welcome to the Modern Retail Podcast, where we discuss the ways retail is changing and modernizing. I'm senior reporter Gabby Barco. We are on a brief summer hiatus this week, but we wanted to revisit a previous episode. In this one, my co-host Melissa Daniels talks to Kat Kohl, the CEO of green supplement powder AG1. Kohl goes deep into the behind the scenes of AG1's powerful research and development tools. They include why it specializes in triple blind testing to ensure its products can claim efficacy and how it scaled supply chain and manufacturing before entering new categories.

0:53Melissa Daniels:Here's Melissa and Kat Kohl.

1:01Melissa Daniels:You've probably heard of AG1 before, maybe even on a podcast. But today, we're not doing an ad read. We are digging into the story behind the brand itself. AG1 is a direct-to-consumer powerhouse. Last year, it brought in more than 600 million sales. After 15 years in the game, the company, formerly known as Athletic Greens, built its reputation on a single product, the AG1 Daily Nutrition Supplement. But this year, AG1's playbook has had some novel changes. They launched their first new product, a sleep supplement called AGZ. It also reinvented its flagship formula with AG1 Next Gen and launched different flavors like tropical citrus and berry.

1:47Melissa Daniels:And for the first time ever, you can find AG1 on shelves through a wholesale partnership with Costco. To unpack this new chapter of growth, I am joined by AG1 CEO Kat Cole. She came on board in 2021 as COO, and she brings more than 20 years of experience leading and scaling brands. Before AG1, Kat was president and COO at Focus Brands. And these days, she also serves on the boards of Slice and Milk Bar. I am so excited to chat with you today. Kat, welcome to the Modern Retail Podcast. Thanks for having me. How's your day going so far? Living the green dream. Oh, I love it. You get to start every day with a fun rhyme.

2:28Melissa Daniels:That's great. Well, now with AGZ, it's the green, brown, and pink dream, but mostly green still. Mostly green. Oh, maybe we can have a nice color theory confo. Maybe we can tap into some of that later in your packaging design. But let's get right into it here, you know, and kind of set the table on what's really behind some of these big changes and launches that you've had this year. You know, we talked about how AG1 has been this kind of one product brand for over a decade. And it's kind of amazing that one product alone could yield you$600 million in a year. I mean, that is not common. Yeah, totally.

3:08Melissa Daniels:So I feel like there had to have been really interesting behind the seen discussions on saying, okay, why is now the right time to expand and how do we do that? So take me back to what was happening in the company that made you decide it was time to get into more SKUs. Yeah, it's so interesting, right? As you said, this incredible brand and product that has reached a truly unheard of scale. I am not familiar with another single SKU because it is only one green powder that is anywhere near the scale. I think the next closest D to C supplement companies are half our size and many of them have multiple SKUs.

3:54So it's very unusual, but it is truly a testament to the quality of the product over time. Like you don't get that big through just marketing because if it's not real, you constantly have so many customers who've tried, but who drop out of the bottom. from 2020 on, we were growing so quickly. We were growing by multiples, not percent, year over year at scale. And when that is happening, and I joined in 2021, when that is happening, often the most important priority is scaling operations with that graph. We were manufactured only in New Zealand, even though 90 % of our business was in the US. So we were air freighting green powder from New Zealand to the United States, which is very expensive, but a smart play if you're looking to optimize your cash conversion cycle.

4:54Hurts margins, but good for speed of turning that inventory into revenue. And so that fact alone, let's park on that. before I go adding new products, new SKUs, new flavors, new form factors, I probably need to be made or at least blended in the country where 90 % of the revenue is. So the priority was greater for scaling operations relative to how the business had grown. That priority was greater than the priority for more products. So we need, because that priority not only serves the legacy business, but it enables the innovation. So sadly, very sadly for me, I wanted to do AGC much sooner.

5:37I wanted to do some of these other versions and flavors much sooner. But we had an obligation to be able to meet our demand and our growth in economical, replicable, and high-quality ways that allowed us to serve literally 2, 3, 4x the number of customers, not only without compromising quality, but while leaning into our stated mission, which is elevating the standard. In the industry, which meant I needed singular global sourcing. I needed to add production to the countries, in particular the U.S., but others, where we had large parts of our revenue that would add elements of control. I needed to build out the science and the regulatory team in a pretty big way.

6:21I needed to shore up the supply chain and operations team to go beyond that little business that we had coming out of New Zealand. So that's the behind the scenes. That is why we hadn't launched what had long been planned. But eventually, we got the team in place, we got the quality in place, we got the operations in place, we got the planning facilities. And now it's like, all right, now is the time. And so I would argue, to me, some of these launches are a little late to me, but we made the right decisions with the information and the situation that we had at the time, but it explains why we've launched so much in such a little amount of time recently.

7:01Melissa Daniels:Well, thank you so much for sharing that with me. I also feel like there's this really good insight for anyone who's building a company or thinking about scaling brands. It's just because you know you have a great idea. It doesn't mean that now's the time to put it out there, because are all the pieces behind you in place to make sure that when you are ready to launch, it will be just as successful as you know it can be because everything else underneath it is already running at 110%. Yeah, and I would tell, especially if it's a consumable product, I would encourage founders and teams to be very careful not to be over-influenced by SaaS, software, or AI guidance where people say, just ship it and you can figure it out.

7:51If people are putting something in their bodies, you've got to be much farther along in your certainty and in your confidence about, especially if there are research-backed benefits, if there are claims of benefits, if people need to drink something every day, the flavor, the solubility. Yes, of course you iterate over time and that never ends. You're never done. It's never perfect if you're really listening to your customers because they change over time. However, I would argue things need to be farther along the development path before they get launched and people put it in their body. It's a supplement, a nutrition product, a drink.

8:35It's not software. Totally.

8:38Melissa Daniels:That's a great segue into something I'm really excited to talk to you about and hear your perspective on. And that's this really important nutritional science foundation that AG1 has, you know, really as part of your DNA. But also, you know, I'd love to hear your thoughts too, on sort of how you see that landscape evolving and how you make sure your company is, A, you know, at the forefront of the nutritional science and B, not getting distracted by maybe noise and shiny objects in what can be a very noisy space. If we think about food, healthy food, there aren't a lot of double-blind, randomized, placebo-controlled clinical trials that prove that broccoli is good for you.

9:24There is research and there is science behind the active ingredients in certain fruits, vegetables, proteins, right? That we know a lot about that. But there aren't a lot of double-blind, randomized, placebo-controlled trials for food. It is not required for you to trust that that grass-fed beef or that fish or that spinach are probably good for you. And so let's take that on one side, food. Then you have pharma over here, where big markets, big business, billions and billions in research, FDA trials, things required, right? Because they're making disease claims and health claims. You're talking thousands or tens of thousands of people in trials often.

10:13And so you have these two extremes. Food is medicine or supplement, supplementation, nutritional supplementation that is whole food based in many cases, but is not a pharmaceutical, lives in this space in the middle. And it is where we are using, at least in our case, an herb, a plant, a mineral, and the many bodies of research behind those ingredients at certain doses in certain environments to then say there's research that says this thing, if consumed in this way, at this quality, at this standard, at this frequency, has shown to have this benefit. And then there's products like ours that put multiple of those together.

10:55So you have research-backed benefits of individual ingredients. But then if you put a lot of things together, you also have the opportunity to conduct additional research to say, how do these things interact? What benefit might occur from D3 and K2 together, which many people have heard of. I'm using common examples, but there are far less common examples. Vitamin C. Anyone in the supplement world will tell you about vitamin C and the research behind it. And the average consumer thinks vitamin C helps with immunity, right? Lots of research that says that, but that research was actually incomplete.

11:34Vitamin C is most effective when paired with citrus bioflavonoids, which is what is in AG1. It is also what is in fruit, right? You don't eat vitamin C off a tree. You eat fruits that has citrus, that has vitamins and bioflavonoids, other actives that allow the body to absorb and use those beneficial subsets of the product. So we saw years ago that conducting the additional layer of research, double-blind, in some cases triple-blind, triple-blind is when even the analyst doesn't know which is the placebo and which is the actual product. So you have the subject, the research subject, do they know if they're drinking a placebo, a green powder or actual AG1?

12:23So that's randomized placebo control. Random people have the placebo, random people have the actual product. They have to study itself as randomized. Then double blind, the conductor, the people doing the experiment don't know. they are blind to what is what. So you're removing bias. And then even the people interpreting the results, right? Triple blind. And so it's like, how many ways can we remove the bias that people might think makes a study not reliable? And so we make the investment, by the way, the more blinds, the more expensive, right? Because you just got to add all the tracking mechanisms.

13:02Melissa Daniels:I actually want to be in the room when they do that reveal. Oh, A is the placebo. Yeah, that must be a fun moment for everybody involved. Exactly. And so it was clear that as a supplement company, even though it's not required, say by the FDA, nor is it required by the customer, that in a layer of investment that could further demonstrate efficacy, also synergy, right? Multiple ingredients, what happens when they are together, also safety profile. A way to stand out amongst a crowded marketplace is to add clinical research, rigorous, double-blind, randomized, placebo-controlled human clinical trials that would add that layer of proof on top of we have research-backed ingredients, which is what every good supplement company who makes a supplement does.

13:51So that was the thinking. It's We see where the customer is going. We are at the scale, whereas the leader, a premium product, people are paying for the best. They deserve more proof of the benefits. And we believe that's where the customer is going. And maybe we won't get credit for it, but we believe that it is the right thing to do to add proof. But it is also the right thing to do for a second reason, and that is to inform future innovation.

14:18Melissa Daniels:Yeah, I almost want to see how much more you can sort of share about what this means operationally because what I'm understanding from this conversation is, yes, you sell this blockbuster supplement that millions of people know and love, but really you're a science company and you're a research company. I mean, operationally, is it like half your team is devoted to research and half is product? How are you sort of structured to hold all this? Half of our team is, I would call it the science formulation and production side of the product, half. It's a lot of people. And we have 10 PhDs on staff now and multiple clinical researchers and multiple practitioners.

15:05I have people in sports medicine. We have people in gut health. We have people in functional medicine. They are active practitioners or were practitioners and are now on the science and formulation side and bring a clinical practice lens to formulation. And then, of course, we bring in third parties because anyone will say, yeah, but you drank the Kool-Aid, right? You're biased. Of course. So it's like, how can we have the most objective, most certified, most trusted body of development institutions and research institutions that help us formulate our continuous improvement, any of our scientific claims?

15:44Like we hold ourselves to such a high standard. One, the FTC and the FDA do actually have regulations around what supplement companies can and can't claim. But the little guys or people who are earlier in their journey are fast and loose. And there aren't the resources to police their very illegal claims. And we see them. And it's tough, right? When you're a business holding yourself to a standard where you're not going to, even though you might have tens of thousands of customers telling you, which we do, that AG1 does something beneficial for them. If it has to do with making a disease better, you are not allowed to speak about that.

16:24You are not allowed to say 10 ,000 people who have this condition have said AG1 helps them, unless you are a pharmaceutical company running pharmaceutical trials. That is the current law.

16:32Melissa Daniels:And that marketing, it sounds like, you know, it can't happen in a vacuum, right? You have to think about what the other companies are saying and how do you make sure that, you know, despite whatever, I hate to use the term snake oil is out there, but you know, how do you make sure that that veracity of your product is coming across in what you're communicating to people? And I think that's where, yeah, I think it is really tough. And we have this conversation a lot when we talk to brands, not just in supplements, but also So beauty, any personal care, right? This idea of efficacy is critical because especially now people are looking for value, right?

17:14Melissa Daniels:And when you have this premium price product that, you know, you can't just go out and say, hey, this is going to change X, Y, and Z for you. They also won't buy it again if it doesn't work. Exactly. I mean, that is my point in a lot of interviews where people are like, yeah, but you know, you're on podcasts and you have marketing. I'm like, do you think a podcast is what gets someone to invest$2.90 a day for five years? Yeah. I'm sorry. There are a lot of good podcasts, but nobody loves a podcast that much that they will keep drinking a product for three years that they don't believe is beneficial.

17:51Melissa Daniels:And I'm so glad we just kind of went through what really happens behind the scenes because I want to go back to the, when you put NextGen out, because if I can just imagine having this, you know, legacy product at this point. People love it made$600 million last year, and now we're going to change it. Like, what was that moment like for you and your team? You know, it sounds like it had been in the works for a long time before you put it on shelves, but okay, cool. So how did you know now is the time? Were you nervous? Just like, what was that like for you and your team? I wasn't nervous because we had been working on it for three years.

18:29Melissa Daniels:Yeah, yeah, yeah. AG1 Next Gen was about continuous improvement of our core product, which we have done many times in our 15 years. So it's a promise to our customers like the iPhone that keeps getting updated, like the Tesla that keeps getting updated. We are going to keep making this thing that you buy better. Not all the time, but as the science and as the technology advanced where it is clear that something is better enough, should be available to you, and can benefit most people at a foundational nutrition level. This is not personalized medicine, right? It's precision medicine. It's for nutrients and gut health.

19:09It's for this area. And there were four things that we were tracking for years that we knew were going to drive the next continuous improvement of AG1. One was the science was very clear that most people in developed countries were still woefully deficient in B vitamins, in particular methylated B vitamins. People have heard of the gene mutation that makes it hard for people to methylate or process certain B vitamins. And having a methylated vitamin doesn't hurt people who don't need it. It does help people who do need it, right? So moving the B vitamins to an increased amount and to all methylated forms, to P5P in particular of one of the B vitamins, we knew we needed to do that.

19:52So that was one big one. And that affects the ingredients, the cost, and to a degree, a little bit of the flavor. It can. Then we also followed the research that said most people with healthy diets still have underdeveloped diversity in their gut microbiome. We don't get enough microbial diversity. And it's the underlying issue of so many things, and it can help so many things. And AG1 up to that point had a single or a double, depending on the year, strain probiotic. And we had worked with the top probiotic fermenters in the world on getting access at scale. Remember, we're a big company. So if we make something, we have to be able to make a lot of it.

20:35um that's a hard part and um it's a hard part and make a lot of it consistently with redundancy in the supply chain um and so we um doubled the amount of probiotics and went from a two strain to a five strain of the most clinically studied five strains of dairy-free live culture fermented probiotics. And that was a whopper of a cost increase. Whopper. They're very expensive. It's one of the most expensive things in the formula. It also affects the texture. It actually smooths it out, which is kind of interesting. But you're also talking about people who've been drinking two microbes, and now we're going to make it five.

21:17So do you have digestive discomfort for a little bit, like most people do when you have a new probiotic. So that was another one. We had to understand, is this something people can tolerate as a light upgrade? Or do we need to say, it's a big one and do you want more? And it was very clear that it was light enough to still be tolerable by most. But we knew we would have a single digit percent of customers who are like, I like the single strength. I like the simpler formula. I want to stay on it. It's a very low, low percentage, but a tiny bit of our customers.

21:55Melissa Daniels:And still your customers. Yeah. Yeah. And they're like, I don't want the new thing. But most people are like, thank you. I pay a premium exactly for this. Not only do I pay a premium for more B vitamins and better probiotics, but other minerals that we added, molybdenum, boron, other things, and more human clinical trials. Four, double blind, randomized placebo-controlled clinical trials more than any other blended product, blended ingredient supplement on the market that I am aware of. Certainly more than any green powder product. Most don't even have one gold standard human trial. We have four on NextGen that prove that it covers nutrient gaps.

22:32We literally took someone's blood, put them in a box, not one person, multiple people, took their blood vitamin serum levels before they drank AG1, have them drink AG1, keep taking their blood over the hours. They cannot leave, right? They're stuck. There's nothing else. And then you watch their blood serum levels go up. It is not expensive pee. And then all the gold standard digestive tests, some of which are shine studies, some of which are poop. And we prove that we improve microbial diversity by 10%. And so if you think about that rigor, that level of next gen, it helped us think about AGZ, which was launched with gold standard clinical trials on the ingredients on the label at dose.

23:15So we exposed even more of the label, even less than a proprietary blend. So people could see those actives and track the research behind it. And now we're layering in additional clinical rigor on top of that to further prove observation. Sleep's a really different one, right? You can't just like take, you can take blood and say, this is what's happening. Sleep, how many variables affect your sleep? A lot. And so we will, we're layering on other studies to add that rigor with AGC as well.

23:45Melissa Daniels:Remind me too, what's sort of the average lifespan of your customer right now? I mean, I have 500 customers who have been drinking AG1 for a decade. Wow. Now it's only 500 out of millions over years, but 10 years. So our average is multiple years, which is why we have the LTV that we do, which is why we can make the investments in the business that we do. Because now there are some people who drink AG1 and go, not for me. Maybe it's an intolerance with an ingredient. There's 75 ingredients. If you're allergic to pineapple, there's pineapple in there. There are people who used to drink it and say, I need something more tasty.

24:31Well, now we have three new flavors. And flavors are a whole new ballgame. There were low double-digit percent of rejecters who said, I trust that you're doing something high quality. I trust the science, but I can't get used to even the slightly pineapple vanilla original flavor of AG1, too green, too whole.

24:58So citrus, which is my favorite, very bright and tangy. And now we're learning so many things about those customers. Some flavor customers don't want one flavor every day. They want to be able to switch it up and that helps them stick with their routine. A good bit of our existing customers are like, I'm a purist. I don't want flavor. In fact, we have people who are like, can you make me an unsweetened version. And I have consumed our product without the very light, high quality, natural sweetener that we have in there. And it's pretty good. But I don't know that people know what they're asking for.

25:38Melissa Daniels:Maybe you don't want to start your day with that. Like there might be other things. Spirulina has a strong... Spirulina in particular is an incredible nutrient for detoxification and antioxidant value and for your bites. It's not tasty. Yeah, it's not just looking for crunchy points. You know, you want to really just make sure that that is as pure as possible. Speaking of customers, though, I really want to talk about Costco. You know, you had teased earlier this year that y 'all were ready to go wholesale, made this great announcement with your Costco partnership. How's that going? You know, who's your customer there?